Transport Airlines

Japanese Low-Cost Carriers Creating a Spike in Domestic Bookings

Mar 17, 2014 3:00 am

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As AirAsia’s boss said, “It’s a classic economic theory of reducing the price and increasing demand.”

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Vanilla Air  / Facebook

A Vanilla Air plane on the tarmac. Vanilla Air / Facebook


Japan’s aviation market, the world’s third largest, is set to carry the most passengers domestically in seven years as budget airlines spur demand with low fares to counter a shrinking population.

The chart of the day compares domestic air-travel passengers with Japan’s population, which has declined since peaking at 127.8 million in 2008, according to U.S. Census Bureau data compiled by Bloomberg. The number of annual fliers dropped for about a decade beginning in 2003, then rose since 2012 when Peach Aviation Ltd., Jetstar Japan Co. and AirAsia Japan Co. started flights.

Domestic travel may increase by as many as 2 million passengers to 93 million passengers this year, as Spring Airlines Japan Co. becomes the latest budget carrier to start flights amid an expanding economy, said Ryota Himeno, an analyst at Barclays Securities Japan Ltd. Prime Minister Shinzo Abe’s efforts to reduce regulations and spur growth are helping boost travel, said Tony Fernandes, chief executive officer at Sepang, Malaysia-based airline AirAsia Bhd.

chart

“It’s a classic economic theory of reducing the price and increasing demand,” said Fernandes, who is planning to start a new venture in Japan next year, after selling his stake in AirAsia Japan to ANA Holdings Inc., which re-branded the carrier as Vanilla Air and started flights in December. “The timing is excellent for Japan with the new economic thinking.”

An increase in domestic air passengers this year will be the third straight gain, rebounding from a 17-year low of 78 million in 2011, according to figures from the transport ministry. Japan is the world’s fastest-aging nation, with 25.8 percent of its population over 65 years, a proportion that’s double the segment under 15 years, census data show.

The increase in domestic passengers has also spread to ANA and Japan Airlines Co., the nation’s two biggest carriers, who are also flying more travelers. ANA owns Vanilla and has a 39 percent stake in Peach, while Japan Air has a stake in the Jetstar affiliate. ANA shares rose 8.1 percent this year through March 14, while those of its competitor fell 4.1 percent.

To contact the reporter on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net To contact the editors responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net Suresh Seshadri. 

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